Luxembourg set for a slow recovery, says EU

The European Commission on Tuesday released its autumn forecast, with Luxembourg “set for a slow recovery” with rising unemployment amid moderate growth and rising debt.

05.11.2013

(CS) The European Commission on Tuesday released its autumn forecast, with Luxembourg “set for a slow recovery” with rising unemployment amid moderate growth and rising debt.

According to the report, Luxembourg growth for 2013 will remain significantly above the 0 percent EU average, at 1.9 percent. In 2014, too, growth will remain positive at 1.8 percent, compared to 1.4 percent in the EU.

However, this rate will slow in 2015, largely due to the loss of e-commerce taxes under EU regulation which foresees that taxes are paid in the country of purchase not the company HQ.

The financial services sector, while expected to remain the main driving force behind economic growth, is also a liability, the Commission warns. Especially over the coming two years it is expected to struggle with the implementation of new regulations, such as FATCA, to recover in 2015.

“The implementation of […] new regulations is expected to have an impact on the profitability of the financial sector, which has to adapt and reorient its business, at least some segments of the industry,” the forecast states.

Rising unemployment, deficit and debt

Added to limited growth is rising unemployment, due to a slowdown in job creation, continued labour shedding in some sectors and a growing population looking for work.

According to the EU's definition of unemployment, which is slightly different from that in Luxembourg, unemployment is expected to rise from 5.7 percent in 2013 to 6.5 percent in 2015.

EU unemployment figures are consistently lower that local numbers, as the definition of unemployment is different. Luxembourg figures see the 6 percent mark already breached in 2013.

Finally, under the assumption of a no-policy-change, the government deficit is projected to rise from 0.6 percent of GDP in 2012 to 0.9 percent this year, 1 percent in 2014 and a 2.7 percent in 2015, with the latter figure expected because of the loss in e-commerce VAT revenue.

Amid rising government expenditure, the Commission expects government debt to increase to almost 29 percent in 2015.

However, these figures would still place Luxembourg well within the outlines of the EU's Stability and Growth Pact ratified in February, which foresees that countries do not exceed a 3 percent of GDP national budget deficit and 60 percent of GDP public debt.